NCB Cap upgrades eXtra to 'Overweight', expects FY2020 profit to hit SAR 257 mln

NCB Capital upgraded its recommendation on United Electronics Co. (eXtra) to 'Overweight', while raising the stock's target price from SAR 73.60 to SAR 90.80 per share.

The brokerage firm attributed the recommendation to better growth prospects of the consumer finance business, market share gains on sector consolidation, and lower risk free.

NCB Capital also expects consumer finance business to be a key driver for eXtra's earnings and margin growth.

The company is focusing more on personal loans (50% of financing book) rather than product loans as the management believes it will be the main financing method for discretionary spending.

It also expects the impact of higher value-added tax (VAT) to be gradually absorbed and sales growth to normalize.

NCB Capital also predicts eXtra’s store expansions to be relatively muted going forward (1-2 stores this year, versus six new stores in 2019), taking the store count to 58 by 2025 from 50.

It forecasts the pace of sector consolidation to increase going forward as relatively smaller players exit the market due to challenging market environment.

NCB Capital raised its forecasts for the retail store's net profit in 2020 from SAR 199 million to SAR 257 million, and for 2021 from SAR 251 million to SAR 269 million.